Market Gossip -May 30 2008

Shorties make a sweet killing

The sharp fall in indices in the last 30 minutes of trade on Thursday caught many people by surprise. Some analysts attribute this fall to some smart work by traders at a time when market was nervous ahead of the expiry of the May series on Thursday. These deep-pocketed traders are believed to have made a killing in the late fall on Thursday.

A derivatives analyst from a leading brokerage said there was a sharp rise in the premium of Nifty 4,900 puts just ahead of the late fall, indicating some traders would have had prior knowledge of a sell-off.

According to provisional data on the BSE, foreign institutional investors net sold Rs 1,277 crore worth of shares. Indices traded choppy for most of Thursday’s session. The Nifty closed at 4,835.30, down 83 points or 1.7% from Wednesday’s close.

Lacking embedded value

The embedded value (EV) concept was widely used till early January by analysts to justify the sharp jumps in share prices beyond their real value. In this, analysts take into account the valuation of the companies’ subsidiaries, listed or unlisted, and certain assets including real estate, that are not part of its core business.

The fall in stock markets, however, does not seem to deter analysts from using this concept widely. For example, real estate shares have tumbled 40-50% on an average from their record levels to factor in a likely slowdown in the realty sector in the coming years.

But, the same logic does not seem to be applicable to companies with real estate arms. Some analysts continue to factor in value of real estate arms, while assigning price targets to the parent stock.

Traders prefer to go short

It may not be the best of times for investors, but the sustained bearishness in the market is turning out to be a relief for day traders. Till the second week of January this year, the safest strategy was to go long first thing in the morning and then unwind those positions later in the day.

But ,with the mood having changed, traders have reversed their strategy. Given the gloomy outlook, these players now go short at frontline counters first thing in the morning, hoping to cover their positions at a lower price later in the day. And of late, this strategy appears to be yielding fruit.

via ET